Tag: Taiwan Semiconductor Manufacturing Co Ltd

A.I., rate cuts and Japan’s rebound: Asia stocks are looking ‘much more promising’ than U.S. peers

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The Japanese flag flutters over the Bank of Japan (BoJ) head office building (bottom) in Tokyo on April 27, 2022.

Kazuhiro Nogi | Afp | Getty Images

While the world grapples with renewed fears of a global recession, analysts say Asia stands out as the region to watch and could outperform the broader global market.

At first glance, Asian stocks as a whole have more modest gains so far this year compared with their U.S. and European counterparts. The MSCI International All Country Asia Pacific index is only up 4.71% year to date, versus the broad-based S&P 500 and the pan-Europe Euro Stoxx 600, which are up 13.25% and 6.65%, respectively.

But Asia is more economically diverse than Europe and the U.S., and there are still bright spots in the region, especially in Japan and South Korea.

Earlier this month, Nomura said Asia is likely to outperform in the medium term as “the prospect of subdued global growth and the near-end of policy rate hikes are likely to spur investors to look for new opportunities, while placing a premium on healthy economic fundamentals.”

It added Asian economies “by and large” avoided qualitative easing on a large scale, leaving the region in better stead in terms of fiscal sustainability, inflation challenges and financial system health.

While the Nomura analysts expect China’s economy to slow, they expect GDP growth in Asia will “sustainably” outperform other emerging markets and the U.S. — with India and Southeast Asia set to be the fastest growing economies this decade.

This view is also shared by analyst Daniela Gombert from asset management company DWS, which said that “over a horizon of twelve months, Asian and European stock markets appear to be much more promising than the U.S. market.”

Solid fundamentals in Japan

Specifically for Asia, Gombert points at the Japanese stock market, saying that “Unlike roughly 30 years ago, valuations are far from being as exaggerated as they used to be back then. Generally speaking, Japanese stocks allow investors to become part of the Asian growth story.”

As most of Asia recovered from the pandemic, Japan’s markets led gains, with the Nikkei 225 up almost 25% year to date and the broad-based Topix up by about 21.5%.

The firm said China’s reopening and the return of tourists should bode well for Japan. As such, Gombert believes that “Japan should be a quite interesting market for investors, even if prices have already had a good run short-term.”

The Bank of Japan will also be closely watched, after Governor Kazuo Ueda took the helm earlier this year. Ueda is widely expected to walk the BOJ out of its ultra-dovish monetary policy, although he has made no changes to the BOJ’s policy thus far.

Private banking company Lombard Odier noted that headline inflation in Japan has rebounded, and that wage negotiations in the spring delivered one of the highest base pay rates in recent decades.

The firm also expects “another year of above-target inflation in 2023” and predicted the BOJ will respond by ending its “yield curve control” policy later in the year.

During the central bank’s June meeting, one policymaker said that a “revision to the treatment of yield curve control should be discussed at an early stage,” the first time a BOJ summary of opinions showed an explicit mention of the need for a “revision” to the YCC policy.

In April, the BOJ announced it will conduct a “a broad-perspective review of [its] monetary policy,” which could span 12-18 months. But Lombard Odier still expects the BOJ to end the yield curve control policy before this review is over.

Rate hikes across Asia to end

While the U.S. Federal Reserve has signaled it could raise rates by another 50 basis points before year end, Morgan Stanley predicted that inflation has peaked in most economies in Asia, noting that almost all central banks in the region have paused their rate hike cycles.

“We think this pause is durable and in fact further disinflation opens the room for rate cuts as central banks don’t need to let real rates rise into restrictive territory,” the team of four economists wrote in a note earlier this month.

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Morgan Stanley said the disinflation process in Asia “is well underway” and it expects inflation to move back to within target ranges for 80% of the region in the next three months.

As such, it expects Asian central banks to be able to cut rates even ahead of the Fed, with the early movers, like Indonesia, acting as soon as the fourth quarter of 2023.

A.I. a major driver

Technological developments are another reason for optimism in Asia. With the advent of generative artificial intelligence like ChatGPT from OpenAI, Google’s Bard and Baidu’s Ernie Bot, attention has also turned to the hardware powering these AI tools, i.e. semiconductors.

Countries have plunged massive subsidies into building chip plants and boosting semiconductor production, such as the U.S. Chips Act, which will provide $280 billion in subsidies over the next decade.

Lombard Odier senior equity research analyst for tech Marco Barresi highlighted that Japan, South Korea and Taiwan also provide tax credits and subsidies.

Furthermore, despite restrictions on China from the U.S. on obtaining advanced chip technology, Barresi said China is working on support for its semiconductor industry, which could amount to an estimated $143 billion worth of subsidies over five years.

Read more CNBC reporting on A.I.

Barresi added AI will create a new generation of tech startups and applications, just like how “the arrival of the iPhone built an entire industry around mobile applications, and the rise of cloud computing created a new sector of software companies.”

He also points out that almost a third of global semiconductor revenue in 2022 was in the most sophisticated computing chips — and Asian firms account for most of the production of these advanced chips.

Two Asian companies dominate the production of these advanced chips, namely, Taiwan Semiconductor Manufacturing Co and South Korea’s Samsung Electronics.

Barresi writes, “We prefer semiconductor producers serving the cloud market, and so exposed to developments in AI, or electrification. This fits well with our general preference for quality technology companies as the economic cycle evolves.”

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June 28, 2023
China-Taiwan tensions could grip 2024 election as Musk, Buffett and Dalio sound alarms

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Chinese tourists walk past an installation depicting Taiwan (R) and mainland China at a tourist area on Pingtan island, the closest point to Taiwan, in China’s southeast Fujian province on April 6, 2023.

Greg Baker | AFP | Getty Images

Fraying U.S.-China relations and rising tensions over Taiwan have influential business leaders such as Elon Musk and Warren Buffett sounding alarms about a possible invasion – a matter that will likely loom over the 2024 election.

China is already bound to be a major issue in the U.S. campaign as President Xi Jinping pushes to expand his nation’s power. China’s policy regarding Taiwan, the world’s leader in the semiconductor industry, could end up making it an even bigger focus.

The cross-strait strife has already provoked commentary from some top contenders in the Republican presidential primary race who have stressed the need to deter a possible Chinese invasion invasion of the island. Taiwan is also a topic of discussion during this week’s Group of Seven meeting in Japan, which President Joe Biden is attending.

Xi has made Taiwan “reunification” a focal point of his agenda and Beijing has ramped up hostilities against the island, putting a spotlight on its importance to the global economy and conjuring fears of a major international conflict that could eclipse Russia’s devastating war in Ukraine.

“The official policy of China is that Taiwan should be integrated. One does not need to read between the lines, one can simply read the lines,” Tesla CEO Musk said in an interview Tuesday with CNBC’s David Faber.

“So I think there’s a certain — there’s some inevitability to the situation,” Musk said, adding that it would be bad for “any company in the world.”

Tesla just last month announced plans to open a new factory in Shanghai that will build “Megapack” batteries.

Musk’s remarks came one day after Buffett’s Berkshire Hathaway revealed in a filing that it has completely abandoned its recently acquired stake in Taiwan Semiconductor Manufacturing Co., once worth more than $4 billion. The world’s largest chipmaker, based in Hsinchu, Taiwan, produces the majority of the advanced semiconductors used by top tech companies like Apple, Amazon, Google, Qualcomm and more.

Buffett said in recent weeks that the geopolitical strife over Taiwan was “certainly a consideration” in his decision to offload the shares over the last two fiscal quarters. And in an analyst call earlier this month, Buffett said that while the company was “marvelous,” he had “reevaluated” his position “in the light of certain things that were going on.”

“I feel better about the capital that we’ve got deployed in Japan than Taiwan. And I wish it weren’t so, but I think that’s a reality,” he said.

Meanwhile, Ray Dalio, founder of hedge fund titan Bridgewater Associates, in late April wrote a lengthy post on LinkedIn warning that the U.S. and China were on the “brink of war” — though he specified that that could mean a war of sanctions rather than military might.

The apparent worries from the three members of Forbes’ list of the world’s richest people come “a little late to the party,” Longview Global senior policy analyst Dewardric McNeal said in an interview with CNBC.

“It’s frustrating to me,” McNeal said. “We’ve been talking about this for years, and we’ve also been trying to warn against being overly dependent on China as your source for selling products [and] manufacturing products.”

He also noted that Berkshire Hathaway still holds stock in BYD, an electric car maker based in Shenzhen, China. “Quite frankly, it is advantageous for China to scare investors away from Taiwan and damage or taint that economy, because that is one of the scenarios [in which] that they could bring Taiwan to heel without an armed intervention,” McNeal said.

Buffett’s company has sold more than half the stake in BYD it held as of last year.

“I don’t think an attack is imminent, but that doesn’t mean you shouldn’t be using this time to plan,” McNeal said. “And what I often see is businesses sort of talking beyond the point, hoping — hope is not a strategy — that this won’t happen.”

The U.S. policy on Taiwan

U.S. intelligence officials have said Xi is pushing China’s military to be ready to seize Taiwan by 2027. China is “likely preparing for a contingency to unify Taiwan with the [People’s Republic of China] by force,” the Pentagon said in 2021.

China asserts Taiwan, a self-governing democracy, is part of its territory. It has pushed to absorb the island under the banner of “one country, two systems,” a status rejected by Taiwan’s government in Taipei.

Beijing in recent years has steadily ramped up its pressure over Taiwan on economic and military fronts. It flexed its might as recently as last month by conducting large combat drills near Taiwan, while vowing to crack down on any hints of Taiwanese independence.

China has not ruled out using force to take control of Taiwan.

Taiwan’s recent interactions with the U.S. have provoked aggressive reactions from China. After then-House Speaker Nancy Pelosi, D-Calif., visited Taipei last summer, China launched missiles over Taiwan and cut off some diplomatic channels with the U.S.

A meeting in California last month between Taiwan’s president, Tsai Ing-wen, and current House Speaker Kevin McCarthy, R-Calif., prompted more threats and fury from Beijing.

Even in a political climate where both major U.S. parties have been critical of China and wary of its encroaching global influence, leaders have tread carefully around the volatile subject of Taiwan. The U.S. has officially recognized a “One China” policy — that Taiwan is a part of the mainland — for more than four decades, and China has vowed to sever diplomatic ties with countries that seek official diplomacy with Taiwan.

While Pelosi spoke of America’s interest in preserving Taiwan’s democracy on her trip to Taipei, she stressed in a Washington Post op-ed at the time that her visit “in no way contradicts the long-standing one-China policy.”

Biden was seen to break with America’s longstanding stance on Taiwan when he said last year that U.S. forces would defend the island if it was attacked by China. The White House, however, maintains the U.S. policy on Taiwan is unchanged.

2024 contenders weigh in

Dalio predicted that the brinksmanship between the two superpowers will grow more aggressive over the next 18 months, in part because the 2024 U.S. election cycle could usher in a swell of anti-Chinese rhetoric.

There’s little doubt that China will a major topic on the campaign trail. At least three Republicans who are seen as potential presidential candidates — Florida Gov. Ron DeSantis, Virginia Gov. Glenn Youngkin and former United Nations Ambassador John Bolton — have recently embarked on trips to Asia, including Taiwan, to meet with allied leaders.

Meanwhile, U.S. lawmakers at every level have produced an array of legislation seeking to reverse China’s growing influence, some of which has drawn accusations of fearmongering. And some of the potential presidential contenders have already weighed in with calls to meet Chinese aggression with strength.

“Xi clearly wants to take Taiwan at some point,” DeSantis said in an interview with Nikkei while in Japan. “He’s got a certain time horizon. He could be emboldened to maybe shorten that horizon. But I think ultimately what I think China respects is strength,” DeSantis said.

DeSantis had drawn criticism for a previous foray into geopolitics when he described Russia’s war in Ukraine as a “territorial dispute.” His views on U.S. policy toward Taiwan, in contrast, were more vague.

“I think our policy should really be to shape the environment in such a way that really deters them from doing that,” DeSantis said of a potential Chinese invasion of Taiwan. “I think if they think the costs are going to outweigh whatever benefits, then I do think that they would hold off. That should be our goal.”

DeSantis, who is gearing up to formally announce his presidential campaign next week, is seen as former President Donald Trump‘s top rival for the Republican nomination.

Trump said last year that he expected China to invade Taiwan because Beijing is “seeing that our leaders are incompetent,” referring to the Biden administration.

Former Vice President Mike Pence, who says he will make his own decision about running for president by next month, said in April that the U.S. should increase sales of military hardware to Taiwan, “so that the Chinese will have to count the cost before they make any move against that nation.”

In an interview Wednesday on CNBC’s “Squawk Box,” Pence cited the cross-strait tensions as an argument against cutting U.S. military spending.

“At a time when China is literally floating a new battleship every month and continuing military provocations across the Asia-Pacific and Russia’s waging an unprovoked war in Eastern Europe, the last thing we ought to be doing is cutting defense spending,” he said.

Former United Nations Ambassador Nikki Haley, who launched her presidential campaign in February, said in a statement to CNBC, “American resolve matters to China.”

“They are watching what we do in Ukraine. If we abandon our friends in Ukraine, as some want us to do, it will only encourage China to attack our friends in Taiwan,” Haley said.

‘Like trying to separate conjoined twins’

But the political will to defend Taiwan in a Chinese invasion may clash with economic forces.

“Almost no one realizes that the Chinese economy and the rest of the global economy are like conjoined twins. It would be like trying to separate conjoined twins,” Musk told CNBC on Tuesday. “That’s the severity of the situation. And it’s actually worse for a lot of other companies than it is for Tesla. I mean, I’m not sure where you’re going to get an iPhone, for example.”

Some CEOs of America’s biggest banks have said they would pull their business from China if directed to do so following an invasion of Taiwan. But Musk’s characterization of the entangled global economy is no exaggeration — and much of the focus has fallen on TSMC.

“If Taiwan were taken out, we would be like severing our brain, because the world economy will not work without [TSMC] and the chips that come out of Taiwan today,” John Rutledge, chief investment strategist of Safanad, said Wednesday on CNBC’s “Power Lunch” in response to Musk’s comments.

David Sacks, a research fellow at the Council on Foreign Relations, said on CNBC that Apple is in a “very tough position” because the most advanced chips it needs are made in a single building on TSMC’s campus in Taiwan.

The company’s technological edge in the production of semiconductors, which are used in all manner of products from cars to washing machines, has led to it being a potential “single point of failure” for many companies, McNeal said.

But he also noted that the global reliance on TSMC — including by China, which reportedly depends on the company to provide about 70% of the chips needed to fuel its electronics industry — could act as a sort of bulwark against an invasion.

A paper from the Stimson Center on Taiwan’s “Silicon Shield” put a fine point on the issue: “Without a doubt, the first Chinese bomb or rocket that should fall on the island would make the supply chain impact of the COVID pandemic seem like a mere hiccup in comparison.”

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There are nevertheless efforts underway to diversify the industry geographically, including through a $40 billion investment to expand TSMC chip production in Arizona.

McNeal said the issue should not solely be centered around TSMC and possible supply chain woes.

“For our Taiwan friends, that message says you don’t give a damn about them, their lives, their safety. You’re only in this for what it means for your bottom line,” he said. “For me personally, that’s not a message that I want to send.”

— CNBC’s Amanda Macias and Michael Bloom contributed to this report.

Disclosure: Dewardric McNeal is a CNBC contributor.

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May 19, 2023
China’s biggest chipmaker posts first quarterly revenue fall in 3 years as semiconductor woes persist

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SMIC has been hit with U.S. sanctions but its business has continued to grow. However, China’s biggest chipmaker still faces a challenge catching up with rivals such as TSMC.

Qilai Shen | Bloomberg | Getty Images

China’s biggest semiconductor manufacturing firm SMIC on Friday posted its first decline in quarterly revenue in more than three years as a glut in chips and lack of demand continues to hit the industry.

SMIC or Semiconductor Manufacturing International Co., posted revenue of $1.46 billion in the first quarter of the year, down 20.6% year-on-year. The last time the company saw a sales decline was in the third quarter of 2019.

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Net profit fell to $231.1 million, down 48% year-on-year.

SMIC Is China’s most important chipmaking company and seen as a key hope to Beijing’s ambitions to boost its domestic semiconductor industry and catch up with rivals like Taiwan’s TSMC and South Korea’s Samsung.

However, the company’s technology is still years behind those leading companies. In 2020, SMIC was put on a U.S. trade blacklist called the Entity List. And last year, Washington introduced sweeping export restrictions aimed at cutting China off from advanced chip tech and equipment. Indeed, these curbs have cut SMIC off from the key tools required to make more advanced chips.

Despite the headwinds, SMIC posted record revenue for the whole of 2022.

But the latest business slump comes amid a difficult chip market with a glut of supply and lack of demand that has hit companies across the industry. Over 50% of SMIC’s revenue comes from making chips that go into smartphones and other consumer electronics. Both smartphone and PC shipments declined in the first quarter.

Samsung, the world’s largest maker of memory chips, saw its profit plunge in the first quarter.

However, SMIC forecast its second-quarter revenue to recover and rise between 5% and 7% quarter-on-quarter. Many other chipmakers have forecast a recovery in the second half of the year.

“For 2Q, it also guided its sales to recover earlier than its peers,” Sze Ho Ng, analyst at investment bank China Renaissance, told CNBC. “The domestic market recovery is happening earlier than overseas,” Ng said.

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May 12, 2023
Warren Buffett names his favorite stock, comments on other Berkshire Hathaway holdings at annual meeting

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May 6, 2023
China’s top chipmaker will ‘struggle’ to make cutting-edge chips competitively

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China’s largest chipmaker SMIC won’t be able to produce cutting-edge chips competitively if it continues to be cut off from advanced equipment, analysts told CNBC.

Vcg | Visual China Group | Getty Images

China’s largest chipmaker SMIC won’t be able to produce cutting-edge chips competitively if it continues to be cut off from advanced equipment, analysts told CNBC.

State-backed SMIC, or Semiconductor Manufacturing International Co., is making 7-nanometer semiconductor chips, placing it in the league of Intel and others.

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However, SMIC has been the target of U.S. sanctions since 2020 when it was put on a U.S. trade blacklist which restricts its access to certain technology. It has also been unable to obtain the extreme ultraviolet (EUV) lithography machines — which only Dutch firm ASML is capable of making.

Without EUV machines, the Chinese tech giant is not able to produce the high-tech semiconductors on a large scale at lower costs.

“It’s just not commercially profitable for SMIC to make those chips with less advanced equipment,” said Phelix Lee, equity analyst for Morningstar Asia.

Following the 2020 sanctions, the U.S. last year introduced sweeping export restrictions aimed at cutting China off from advanced chip tech and equipment. Washington is concerned that China could use these advanced semiconductors in artificial intelligence and military applications.

The U.S. has sought support from other key chipmaking nations including South Korea, Japan and the Netherlands. The Netherlands as well as Japan have reportedly followed the U.S. in imposing rules aimed at restricting China from accessing advanced chip tech.

According to Dutch regulations, ASML will need to apply for a license to export its EUV machines. ASML has not exported the highly complex machines to China so far.

“Can SMIC produce in a commercially viable way scaled by the hundreds of thousands or tens of millions in some cases? That’s what the most advanced tools let you do,” Chris Miller, author of “Chip War” told CNBC.

SMIC did not respond to CNBC’s request for comment.

Competitive landscape

The world’s most advanced chip facilities — such as Taiwan Semiconductor Manufacturing Company and South Korean electronics giant Samsung — rely on tools from just a small number of companies largely in the U.S., Japan and the Netherlands.

TSMC and Samsung began mass producing 7-nanometer chips in 2018. Both firms use ASML’s EUV machines.

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“Nanometer” in chips refers to the size of individual transistors on a chip. The smaller the size of the transistor, the more of them can be packed onto a single semiconductor. As such, smaller nanometer sizes typically yield more powerful and efficient chips.

Both companies have a roadmap to produce 2-nanometer chips in 2025. Samsung will begin making 1.4-nanometer chips in 2027. Both companies started mass production of 3-nanometer chips last year.

Still lagging behind

SMIC is still generations behind TSMC and Samsung. Without advanced chip-making machines, SMIC is going to fall further behind.

“So far I don’t see domestic players being able to provide those machines to SMIC,” said Morningstar’s Lee.

At least for the next couple of years, SMIC is going to struggle to produce chips that are as effective and as high quality as those that are produced abroad.

Chris Miller

Author of ‘Chip War’

While some Chinese firms are trying to build equivalent tools domestically, they remain fairly far behind, said Miller.

In February, ASML said that a former employee in China had stolen data about its proprietary technology.

“It will likely take some time before China begins to replicate the capabilities that these important tools have,” said Miller, who is also an international history professor at Tufts University.

“At least for the next couple of years, SMIC is going to struggle to produce chips that are as effective and as high quality as those that are produced abroad,” the professor said.

Lee said it is “quite unlikely, at least in the next five years” for SMIC to be able to produce the latest generation of chips such as 5 or 3-nanometer chips. “If we want to close the gap [between SMIC and TSMC], we should be looking at a 10-year horizon,” said Lee.

China wants tech progress

But with SMIC being the key to China’s chip ambitions, analysts expect the government to step up support for the chipmaker. SMIC already benefits from government subsidies and state-backed research projects.

“I see a lot of financing to happen for SMIC. These can come from bank loans, issuing new shares, or setting up operating companies with the help of government funding,” said Lee.

The Chinese government has made it clear they want to get as close as possible to the cutting edge…

Chris Miller

Author of “Chip War”

In its five-year development plan, China said it would increase research and development spending by more than 7% per year between 2021 and 2025, in pursuit of “major breakthroughs” in technology and self-reliance.

Domestic tech giants from Alibaba to Baidu have been designing their own chips, seen as a step toward China’s goal of boosting its domestic capabilities in chip tech.

“The Chinese government has made it clear they want to get as close as possible to the cutting edge and so a lot of the funds will be devoted towards trying to produce close to cutting edge chips,” said Miller.

“SMIC is going to benefit from a new level of support from the Chinese government which doesn’t want to see it fail and wants to see it, if possible, continue to make progress technologically,” he added.

— CNBC’s Arjun Kharpal contributed to this report.

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April 27, 2023
Stocks making the biggest moves midday: Micron, Pioneer Natural Resources, Block, AMC and more

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A general view of Micron Technology’s building in Singapore, June 23, 2020.

Micron Gcm Studio | Reuters

Check out the companies making headlines in midday trading Monday.

Block — Shares of the payments stock lost 3% following a downgrade to market perform from outperform by KBW. The firm cited pressures from “‘small risks starting to add up,” including potential regulatory scrutiny of its Cash App business.

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Tesla — Shares of Elon Musk’s electric vehicle company fell more than 1.5% after the firm announced another price cut in the U.S., its fifth since the start of the year. The move came as tougher U.S. standards are set to reduce the $7,500 tax credit available for Tesla’s Model 3. The EV maker also said Sunday it will open a new Megafactory in Shanghai that is capable of producing 10,000 Megapacks — large batteries —a year.

Pioneer Natural Resources – Shares of the fracking giant popped nearly 6% after The Wall Street Journal reported that Exxon Mobil has held informal talks to acquire Pioneer. Exxon shares fell 0.6%.

Micron Technology — Micron Technology’s shares gained 8% after its rival Samsung Electronics announced that it plans to cut memory chip production in the near term. Many Wall Street analysts said the move could accelerate a return to supply-demand balance and potential rebound in the chipmaking sector. Chip giant Western Digital also added about 8%.

Excelerate Energy, EQT and other gas stocks — Shares of Excelerate Energy, EQT and other gas stocks ticked higher as natural gas futures climbed. Excelerate added more than 1%, while EQT jumped 3.7% and Matador Resources gained 2.9%. Excelerate also got a boost from a new Deutsche Bank report, wherein the firm initiated coverage of the stock, rated it a buy and said it was trading below its industry peers.

Apple, Google, Microsoft — Shares of major technology companies were in the red during Monday’s trading session. Apple’s stock price lost 2%, Google-parent Alphabet shed 2.8% and Microsoft lost 1.4%.

Taiwan Semiconductor — Shares of the chip giant dropped 2.2% in midday trading after the company saw a decline in monthly revenue for the first time in four years. The stock is still up roughly 17% from the start of the year. Last month, Bank of America upgraded its price target on the company, believing it stands to benefit from investor interest in generative artificial intelligence.

New Fortress Energy — The stock gained 4% after Deutsche Bank initiated New Fortress as a buy. The bank said the company is well positioned in the liquified natural gas sector, which it believes has “potential to create outsized investment opportunities.”

Nikola — Shares fell 3% after Evercore ISI reiterated its in line rating. The firm also cut its price target in half to $1, saying the company has too many headwinds.

Five Below — Shares of the discount retailer gained 3.9% after Roth MKM said that Five Below might be helped by the success of “The Super Mario Bros. Movie,” which reported stronger-than-anticipated box office results.

AMC Entertainment, IMAX, Cinemark Holdings — Shares of major theater chains were in the green on Monday after the box office success of “The Super Mario Bros. Movie,” which was made by Universal Pictures. AMC’s stock price popped 6.7%, IMAX soared by 2% and Cinemark gained 5.7%.

— CNBC’s Jesse Pound, Hakyung Kim, Samantha Subin, Yun Li, Alex Harring and Brian Evans contributed reporting

Disclosure: Comcast is the parent company of NBCUniversal and CNBC. NBCUniversal is the distributor of “The Super Mario Bros. Movie.”

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April 10, 2023
Time to buy the tech rally? Hedge fund manager Dan Niles and others reveal their top picks

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March 19, 2023
British semiconductor bosses threaten to move overseas as U.S. and EU splurge on chips

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LONDON — The U.K.’s semiconductor industry is crying out for financial support from the government, with insiders warning the country risks losing its microchip firms to the U.S. and other countries if it doesn’t act soon.

Prime Minister Rishi Sunak’s government is yet to announce a strategy outlining U.K. efforts to support the chip industry. And semiconductor bosses in the country are growing frustrated.

Pragmatic Semiconductor, a Cambridge-based startup that produces non-silicon chips, warned it may be forced to relocate overseas if the government doesn’t issue a plan for the industry soon.

“It has to make economic sense for companies like ours to continue to operate and manufacture here, and if there are greater potential economic benefits and governmental support packages abroad, then relocation is the only sensible business decision,” Scott White, CEO of Pragmatic Semiconductor, told CNBC.

Britain is an understated player in the global chip market, specializing in design, intellectual property, research, and fabrication of compound semiconductors.

It is also home to one of the most coveted semiconductor-related assets in the form of chip designer Arm. Based in Cambridge, England, Arm-licensed chips are used in roughly 95% of the world’s smartphones.

Semiconductors, and the mainly East Asia-based supply chain behind them, have become a thorny issue for world governments after a global shortage led to supply problems for major automakers and electronics manufacturers.

The Covid-19 pandemic exposed an overreliance on manufacturers from Taiwan and China for semiconductor components. That dependency has become fraught with tensions between China and Taiwan on the rise.

TSMC, the Taiwanese semiconductor giant, is by far the largest producer of microchips. Its chipmaking prowess is the envy of many developed Western nations, which are taking measures to boost domestic production of chips.

IQE, a microchip firm in the semiconductor “cluster” in Newport, Wales, has also warned it may be forced to relocate to the U.S. or EU if the government does not act in the next six months.

“We would love to stay in the UK and have committed to grow in the UK … but we also have to do what shareholders want and go where the money is,” Americo Lemos, IQE’s CEO, told The Times newspaper.

A U.K. government spokesperson was not immediately available for comment when contacted by CNBC.

In the U.S., President Joe Biden signed into law the CHIPS and Science Act, a $280 billion package that includes $52 billion of funding to boost domestic semiconductor manufacturing.

The EU, meanwhile, has earmarked 43 billion euros ($45.9 billion) for Europe’s semiconductor industry with the aim of producing 20% of the world’s semiconductors by 2030.

China, too, has been forced to revamp its chip strategy after facing strict trade sanctions from the U.S. In December, the country was said to be preparing a more than 1 trillion yuan ($147 billion) package for its chip industry, according to Reuters.

‘Act of national self harm’

U.K. tech industry executives have said the lack of a similar strategy from the government is hurting the country’s competitiveness.

The U.K. likely won’t have the kind of financial firepower to match those bold spending packages, they say. However, they’re hopeful the country will commit to investment in the several millions, tax incentives, and an easier immigration process for high-skilled workers.

“Chasing to catch up is not within the spending power of the U.K., not even remotely,” Simon Thomas, CEO of Paragraf, a British firm developing and producing graphene-based electronics, told CNBC.

On Feb. 3, lawmakers on the Business, Energy and Industrial Strategy (BEIS) committee called for government action on the semiconductor industry, labeling the lack of a coherent microchip strategy an “act of national self harm.”

The government’s BEIS agency was on Tuesday disbanded and replaced under a reshuffle from Prime Minister Rishi Sunak.

The business and industrial strategy portfolio now falls under the remit of Kemi Badenoch, minister for a newly-formed Department for Business and Trade, while a Department for Science, Innovation and Technology is being headed up by Michelle Donelan.

Sunak became Britain’s third prime minister last year, inheriting a gloomy economic backdrop from his predecessor Liz Truss.

He is under pressure from chip bosses to outline a strategy for the industry — and fast.

Russ Shaw, founder of London Tech Advocates, said the government needed to “step up.” London has been “inordinately distracted by chaos.”

A U.K. semiconductor strategy was expected to come out last year. But it has faced a series of delays due to political instability. The government previously suggested establishing a national institution, among other initiatives, to boost its semiconductor industry.

“The rumours I’ve heard is [it may arrive] any day now,” Chris Ballance, co-founder of U.K. quantum computing startup Oxford Ionics, told CNBC. However, he added the process had been “going on for the last four or five months.”

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February 13, 2023
Huawei turns to patents for a lifeline — including those in the U.S.

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Chinese telecommunications giant Huawei saw revenue decline in 2021 for the first time on record.

Bloomberg | Bloomberg | Getty Images

BEIJING — Chinese telecommunications giant Huawei is turning to patents for a lifeline as the company seeks to forge a path forward in advanced chip technology — the prized tech which the U.S. is trying to cut off from China.

In 2022, Huawei announced it signed more than 20 new or extended licensing agreements for its patents. Most were with automakers, for 4G and LTE wireless technology, the company said.

Mercedes Benz, Audi, BMW and at least one U.S. automaker were among the licensees, said Huawei’s global intellectual property head Alan Fan. He said he wasn’t able to say which American company.

Huawei has more on the way — and filed a record number of more than 11,000 patent applications with the U.S. in 2022, according to IFI Claims Patent Services. Their analysis showed just under half typically get approved each year.

But the sheer number of patents filed meant Huawei ranked fourth last year by the number of patent grants in the U.S., IFI said. Samsung was first, followed by IBM and TSMC.

“The U.S. is still a substantial market that everybody wants to have a part of,” said IFI Chief Executive Mike Baycroft. “They want to make sure when they’re developing those technologies that they’re protecting those IP [intellectual property] rights for the U.S. market for the European market.”

Over the last two years, Huawei’s U.S. patents have increased the most in areas related to image compression, digital information transmission and wireless communication networks, according to IFI.

The U.S. government put Huawei on a blacklist in 2018 that restricted its ability to buy from American suppliers. By October 2022, the U.S. made it clear that no Americans should work with Chinese businesses on high-end semiconductor tech.

The potential of patents

Huawei’s revenue dropped for the first time on record in 2021, and the consumer division that includes smartphones reported sales plunged nearly 50% to 243.4 billion yuan ($36.08 billion).

For Huawei, licensing its patents to other companies has the potential to claw back a bit of that revenue.

Alex Liang, partner at Anjie & Broad in Beijing, pointed out that having ceased operations in certain business areas allows the company to realize patent revenue that previously existed primarily on paper.

“Huawei’s situation is similar to Nokia’s when the first generation iPhone came out,” Liang said. “Nokia was quickly losing market share to Apple and lots of their patents no longer [had] to be licensed in exchange for other licenses to protect their phone business.”

Companies that share technical areas with Huawei … should all beware that a giant patent monetization player is jumping into their respective pool and will make a splash.

Alex Liang

partner, Anjie & Broad

Nokia generated 1.59 billion euros ($1.73 billion) in sales last year from patent licensing — about 6% of its total revenue. The company said in 2022 it signed “over 50 new patent license agreements across our smartphone, automotive, consumer electronics, and IoT [Internet of Things] licensing programs.”

Nokia and Huawei extended their patent licensing agreement in December. Huawei also announced licensing deals with South Korea’s Samsung and China’s Oppo.

“As far as I know, Huawei is aggressively pushing for the monetization of its patents,” Liang said.

“It is one of the most important [key performance indicators] of their IP department, if not yet the single most important,” he said.

“So any other companies that share technical areas with Huawei — such as telecommunication, phones, IoT, automobiles, PC, cloud service, and so on — should all beware that a giant patent monetization player is jumping into their respective pool and will make a splash.”

Huawei pushed back at the idea it was building a business in patent monetization.

The company’s IP head Fan said his department is “a corporate function, not a business unit,” and that it redirects royalties to the research departments that filed the patents to fund further research.

“We actively support patent pools and similar platforms, which license patent not just for us, but also for other innovators at the same time,” Fan said in a statement.

The company previously said it expected $1.2 billion to $1.3 billion in revenue from licensing its intellectual property between 2019 and 2021. Huawei did not break down specific figures, and only said it met its intellectual property revenue expectations for 2021.

A business of that size would still be a tiny fraction of the company’s overall revenue. Huawei said in December it expects 2022 revenue of 636.9 billion yuan, little changed from a year ago. Cloud and connected cars are other business areas the company has sought to develop.

Read more about China from CNBC Pro

Huawei has “been floundering around since the demise of their handset business,” said Paul Triolo, Senior Vice President for China and Technology Policy Lead at Albright Stonebridge Group. “I don’t think they had a choice in terms of sort of boosting their licensing revenue.”

“The question is what do they do for 6G [in] five years?” he said. “Are they still going to play a patent game? They can’t really manufacture the equipment. They’re sort of stuck if they can’t figure out the semiconductor piece in terms of going forward.”

Still, Huawei said it spent 22.4% of 2021 revenue on research and development, bringing total category spending to more than $120 billion over the last decade.

Progress in chip tech?

Some of the research is in semiconductor manufacturing. Huawei has filed for a patent in the highly specialized area of lithography technology used for making advanced chips, according to a disclosure late last year on the China Intellectual Property Administration website.

“It’s significant in the sense that each individual piece of a complicated technology like EUV [extreme ultraviolet] is not that difficult to sort of make progress on,” Triolo said. “Turning that into a commercial system at scale that can boost commercially is a huge, huge task.”

Right now, Netherlands-based ASML is the only company in the world that can make the extreme ultraviolet lithography machines needed to make advanced chips.

Not only did it take ASML about 30 years to develop EUV on its own, but the company had the benefit of unrestricted access to thousands of suppliers and international industry groups, Triolo said. “What China really lacks is these international consortia.”

But he didn’t rule out the possibility that China’s national champion could help Beijing build up its semiconductor industry.

“Huawei has a very capable group of engineers,” Triolo said. It’s “probably a five-to-seven year process to build something commercially viable — only if everything goes well, if there’s substantial funding. The Chinese government is going to have to step up here.”

Other Chinese companies are also pouring resources into intellectual property.

IFI’s rankings of companies’ and their subsidiaries’ global patent holdings showed a number of Chinese giants among the top 15, including the state research organization Chinese Academy of Sciences.

Appliance companies Midea and Gree also ranked high globally, among South Korean and Japanese heavyweights, the data showed.

“The rise in Chinese innovation has been in plain sight for a long time,” said IFI CEO Baycroft. “Why shouldn’t we expect that China is innovating today like everybody else? Like Japan, like Germany, everybody’s in this game. It’s not just the U.S.”

— CNBC’s Arjun Kharpal contributed to this report.

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February 5, 2023
Asia’s chipmakers fall as Samsung sees worst quarterly profit in 8 years

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Attendees wait in line beneath a large LED display of smart connected home products to enter the Samsung Electronics booth, during the Consumer Electronics Show (CES) in Las Vegas, Nevada, on January 6, 2023.

Patrick T. Fallon | AFP | Getty Images

Shares of semiconductors in Asia fell as South Korean chip giant Samsung Electronics saw its worst profit decline since the third quarter of 2014.

Its fourth quarter operating profit fell to 4.31 trillion won ($3.4 billion) — a 69% drop from the same period a year ago, when it raked in 13.87 trillion won.

Operating profit for the final three months of 2022 was the lowest since the quarter that ended in September 2014, when it recorded 4 trillion won.

This comes as global smartphone shipments plunged to a low not seen since 2013, marking the largest ever decline.

Stocks of chipmakers in Asia saw losses as Samsung announced it will continue capital expenditure in the upcoming year, in which it spent a total of 47.9 trillion won for semiconductors in 2022.

The company was widely expected to pull back on further spending as global demand worsened.

Shares of Samsung Electronics fell by 3.6% in Seoul’s trading session on Tuesday. Rivals like SK Hynix also fell more than 2%, while Taiwan Semiconductor Manufacturing Company also fell 3.9% in Asia trade.

Japanese chipmakers Tokyo Electron fell 1.14%, Renesas Electronics shed 0.97% while Advantest fell 1.7%. Lasertec also fell 2.07%.

“Without some meaningful adjustment in production, I think it’ll be difficult to match the current mismatch in supply and demand,” SK Kim of Daiwa Capital Markets told CNBC’s “Street Signs Asia.”

U.S. semiconductor maker Micron announced last month it will cut its headcount by 10% in 2023 cut its capital expenditures, which Kim described as “not enough.”

Read more about tech and crypto from CNBC Pro

“We expect Samsung and other major memory makers [to] cut their production by at least 20%, that’s something we anticipated from [the] end of this quarter over the second quarter,” Kim said.

Despite worsening economic conditions, Samsung Electronics said it expects demand to recover later this year.

Semiconductors power everything from smartphones to electric vehicles. We think the sector’s battered stocks look primed for recovery.

“For 2023, while the macroeconomic uncertainties are expected to persist, the Company anticipates demand to begin recovering in the second half,” it said in a press release.

“The semiconductor business will continue to reinforce market and technology leadership and expand the proportion of advanced nodes and products.”

‘Primed for recovery’

JPMorgan Private Bank said the semiconductor industry provides an attractive entry point for investors as chip stocks saw steep declines in 2022.

“Looking at price moves, earnings expectations and [price-to-earnings] multiples, the industry now seems close to a cyclical bottom,” its strategists Jacob Manoukian and Jonathan Linden said in a report released earlier this month, citing data from the World Semiconductor Trade Statistics.

“Semiconductors power everything from smartphones to electric vehicles. We think the sector’s battered stocks look primed for recovery,” they wrote.

Daniel Yoo of Yuanta Securities agreed it may be time to buy chip stocks.

“I think that it is an opportunity to buy, but the question [mark] is that whether or not a really significant turnaround happens in the second quarter or the third quarter,” he said on CNBC’s “Street Signs Asia.”

“We see that continuation of the significant increase in terms of the demand regarding data centers or various areas,” said Yoo. “Also there’s a possibility that the AI-related demand might be picking up going into this year.”

– CNBC’s Chery Kang contributed to this report.

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January 30, 2023
The worst is over for the global chip shortage, ABB chairman says: ‘I’m quite optimistic’

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The global shortage of semiconductors is “being sorted out” after years of disruptions to supply chains that made them a scarce resource, according to the chairman of Swedish-Swiss tech and engineering giant ABB.

Asked whether supply chain issues with regard to semiconductors have been resolved, ABB’s Peter Voser said that he believes the worst of the chip supply crunch has subsided.

“It was really an issue in 2022, specifically the first two, three quarters,” Voser told CNBC at the World Economic Forum in Davos, Switzerland, on Monday.

“This was a real shortage on semiconductors, which affected us a lot because clearly when you’re in electrification automation and robotics, one of the key components is semiconductors, and we are using quite complex ones, so therefore Taiwan is very important but also Chinese semiconductors,” he added.

“But if I look today at it, I think it’s now being sorted out. I think global growth slowdown has helped on this as well, and now for the future I’m quite optimistic.”

Chips are the brains of electronic devices and can be found in a range of products from cars to home appliances to smartphones. They’re a core piece of much economic activity, so the limitations in supply have had a ripple effect on the broader economy.

2022 was deeply challenging for ABB, Voser said, with the coronavirus in China and its related disruptions to global trade hitting the company hard. During pandemic-related shutdowns, ABB was forced to close factories in China, while hundreds of employees had to live in factories due to strict curbs on public life, he added.

“We still delivered in that sense but not at the full capacity,” he said. “We weathered the storms in a certain way.”

In 2023, however, Voser expects an improving outlook in China while the rest of the world experiences lower growth.

“Now with the latest wave of Covid, I think that’s a different wave of Covid and dealing with the pandemic as we all know, I would guess that in a few months, this is over and [we are] getting into a more normal environment in China as well,” Voser said.

“The rest of the world will see lower growth in 2023, I would predict, the first few months,” he said. “In that sense, I am of the school [that in] the second half, China will bounce back and see growth which is higher than anticipated.”

In the semiconductor space, slowing economic activity has helped balance out the shortage as a rise in the cost of living resulted in a softening of demand from consumers for pricey chip-equipped goods, according to Voser.

“I think with the global CHIPS act in U.S., investments in Europe, we will see more. Most probably, we are going into a capacity overhang pretty soon if the economy grows slower than anticipated,” the ABB chairman said.

One thing the chip shortage has highlighted is the dependency of manufacturers on components from East Asia. TSMC, the Taiwanese semiconductor giant, is by far the largest producer of microchips.

Its chipmaking prowess is the envy of many developed Western nations, which are taking measures to boost domestic production of chips.

In the U.S., President Joe Biden last signed into law the CHIPS and Science Act, allocating billions to lure manufacturers to produce the widely used chips domestically. It has also sought foreign investments, convincing TSMC to spend $40 billion to produce more of its chips in the United States at two chip plants in Arizona.

Voser added, however, that brewing tensions between China and Taiwan were a risk to watch moving forward.

“It’s a risk, I do not worry normally, I think it’s a risk you have to manage,” Voser said. “Having new sources of semiconductors across the world is very important, so you go from one supply source, Taiwan and then China into multiple sources and that’s where some of the investments are really critical.”

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January 17, 2023
Asia’s year in review: Who had it good — and who had it bad — in 2022

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Police officers step into the vandalized gateway to Sri Lanka’s presidential palace in July. The country has been hit hard by an economic crisis.

Abhishek Chinnappa | Getty Images News | Getty Images

Curtis S. Chin, a former U.S. ambassador to the Asian Development Bank, is managing director of advisory firm RiverPeak Group. Jose B. Collazo is an analyst focusing on the Indo-Pacific region. Follow them on Twitter at @CurtisSChin and @JoseBCollazo.

As the new year approaches, we turn again to our annual look at Asia’s winners and losers. Government and business leaders in every major economy — China now included — may well hope 2023 is the year when draconian pandemic-related lockdowns become a matter of history.

In our 2021 annual review, we awarded “worst year in Asia” to Afghan women and girls — a consequence of the U.S. and its allies’ chaotic withdrawal from Afghanistan and the return of Taliban rule. “Best year” went to Asia’s Cold War warriors, as social media, “wolf warriors” and politicians helped spark a return to Cold War rhetoric amid worsening U.S.-China relations.

Now, with hopes that Covid is in retreat and that inflation will moderate in the year ahead, we take a last look at who had it good and who had it bad in 2022.

Best Year: Southeast Asia’s comeback kids — Marcos and Anwar

Perseverance proved a winner in 2022 as the year ended with Ferdinand “Bongbong” Marcos Jr. of the Philippines and Anwar Ibrahim of Malaysia becoming leaders of their respective countries. One salvaged a family legacy, the other moved from prison to power — storylines befitting a Netflix series.

In the Philippines, Marcos — the namesake son of his authoritarian father — won a landslide election in May for president, despite what detractors see as a family legacy of corruption and impunity. More than 35 years ago, in February 1986, the senior Marcos and his wife Imelda fled to Hawaii in exile, driven out by a People Power Revolution and a loss of U.S. support.

And in Malaysia, Anwar finally proved a winner in November, shedding the long-held descriptor of “prime-minister-in-waiting” to become his nation’s 10th prime minister. That followed decades marked by smear campaigns, imprisonment and backroom intrigue as the onetime deputy prime minister challenged vested interests with his vows to combat corruption.

The two now face the challenge of governing and moving their respective countries forward. Stay tuned for the next episode.

Good Year: Taiwan’s semiconductor chipmakers

In a year that saw tensions between the U.S and China reach a feverish peak when U.S. Speaker of the House Nancy Pelosi visited Taipei, the island’s sophisticated semiconductor industry ends the year in a good position. Taiwan’s chipmakers are more essential than ever.

Semiconductor chips lie at the heart of everything from computers to cars to smartphones. Underscoring the Taiwanese tech industry’s critical role, a Semiconductor Industry Association (SIA)/Boston Consulting Group 2021 study found that 92% of the world’s most advanced semiconductor manufacturing capacity is located in Taiwan. The other 8% was in South Korea.

TSMC headquarters in Hsinchu, Taiwan. The semiconductor manufacturer’s products lie at the heart of everything from automobiles to smartphones.

Bloomberg | Bloomberg | Getty Images

A rare bipartisan U.S. Congress has taken notice, passing in July 2022 the CHIPS and Science Act, which allocates $52 billion in federal funding to spur further domestic production of semiconductor chips. In December, the world’s dominant chipmaker, Taiwan Semiconductor Manufacturing Company (TSMC), announced plans for a second semiconductor chip plant in Arizona, raising to $40 billion what is already one of the largest foreign investments in U.S. history.

With numbers like those, Taiwan’s semiconductor industry ends the year on the move, still building ties and winning growing support from business and government in the United States and elsewhere.

Mixed Year: Asia’s ‘love’ for crypto

As in much of the world, investors in Asia — once bedazzled if not bewitched by the crypto industry — end the year in a mixed mood. Industry meltdowns have left many, including in government, wondering if the message of caveat emptor — buyer beware — is sufficient, and new regulations loom.

The crypto exchange FTX’s billions-dollar implosion set off alarm bells throughout the region. Singapore’s Temasek Holdings, which has written off its entire $275 million investment in the now-collapsed FTX cryptocurrency business, has suffered “reputational damage,” Deputy Prime Minister Lawrence Wong said.

FTX founder Sam Bankman-Fried is led by officers of the Royal Bahamas Police force following his arrest.

Mario Duncanson | Afp | Getty Images

Bad Year: Sri Lanka, the (one-time) pearl of South Asia

Even amid food insecurity and economic worries across much of Asia, the images of angry citizens storming the official residence of Sri Lanka’s President Gotabaya Rajapaksa and the Presidential Secretariat stand out in what was most decidedly a bad year for this one-time “pearl of South Asia.”

Sri Lanka continues to face a multidimensional crisis. A broken economy, depleted foreign currency reserves, high inflation — at one point reaching more than 70% — and power, fuel and food shortages made worse by the impact of the war in Ukraine, a growing “brain drain” and meager tourism numbers characterize this south Asian nation today.

Negotiations for an IMF deal remain complicated by large amounts of Sri Lankan debt held so by China, India and Japan.

By September, nearly 200,000 Sri Lankans had left the island nation, and thousands of would-be emigrants were planning to do the same in search of a brighter future elsewhere.

An IMF deal to restructure Sri Lanka’s debt could provide much needed cash and economic stability, but negotiations remain complicated by large amounts of Sri Lankan debt held so by China, India and Japan.

Worst year: China’s beleaguered, locked-down citizens

While China has taken pride in an extraordinarily low number of (officially reported) Covid-related deaths, the nation has also become a showcase for the negative consequences of efforts to contain the virus. In what should have been a good year for Chinese President Xi Jinping, he has seen the year close with a wave of Chinese discontent.

By year-end, anti-lockdown protests were reported in numerous cities, including at the world’s largest iPhone assembly factory in Zhengzhou, as China’s zero-Covid policy took its toll on the economy and everyday people’s mental health.

“We want freedom, not Covid tests,” became a common chant of some protesters, according to Reuters, as individuals “pushed the boundaries by speaking for change in a country where space for dissent has narrowed dramatically.”

The spark that set off the rare protests was news of the deaths of 10 people, including several children, in an apartment building fire in Urumqi in China’s Xinjiang province — in an area that had been locked down for several months. A storyline on social media that resonated across the country focused on the role that Covid controls might have played in those deaths.

Chinese citizens can take heart that those protests may well have had an impact. The Chinese government has begun to relax zero-Covid restrictions. Still, the nation continues to lag the world in opening and moving forward, and worries continue about the nation’s rate of vaccination among the elderly.

And so, even as hope has returned for a better year ahead, China’s beleaguered, locked-down citizens take the dubious honors of worst year in Asia 2022.

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December 14, 2022
Tech’s reality check: How the industry lost $7.4 trillion in one year

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Pedestrians walk past the NASDAQ MarketSite in New York’s Times Square.

Eric Thayer | Reuters

It seems like an eternity ago, but it’s just been a year.

At this time in 2021, the Nasdaq Composite had just peaked, doubling since the early days of the pandemic. Rivian’s blockbuster IPO was the latest in a record year for new issues. Hiring was booming and tech employees were frolicking in the high value of their stock options.

Twelve months later, the landscape is markedly different.

Not one of the 15 most valuable U.S. tech companies has generated positive returns in 2021. Microsoft has shed roughly $700 billion in market cap. Meta’s market cap has contracted by over 70% from its highs, wiping out over $600 billion in value this year.

In total, investors have lost roughly $7.4 trillion, based on the 12-month drop in the Nasdaq.

Interest rate hikes have choked off access to easy capital, and soaring inflation has made all those companies promising future profit a lot less valuable today. Cloud stocks have cratered alongside crypto.

There’s plenty of pain to go around. Companies across the industry are cutting costs, freezing new hires, and laying off staff. Employees who joined those hyped pre-IPO companies and took much of their compensation in the form of stock options are now deep underwater and can only hope for a future rebound.

IPOs this year slowed to a trickle after banner years in 2020 and 2021, when companies pushed through the pandemic and took advantage of an emerging world of remote work and play and an economy flush with government-backed funds. Private market darlings that raised billions in public offerings, swelling the coffers of investment banks and venture firms, saw their valuations marked down. And then down some more.

Rivian has fallen more than 80% from its peak after reaching a stratospheric market cap of over $150 billion. The Renaissance IPO ETF, a basket of newly listed U.S. companies, is down 57% over the past year.

Tech executives by the handful have come forward to admit that they were wrong.

The Covid-19 bump didn’t, in fact, change forever how we work, play, shop and learn. Hiring and investing as if we’d forever be convening happy hours on video, working out in our living room and avoiding airplanes, malls and indoor dining was — as it turns out — a bad bet.

Add it up and, for the first time in nearly two decades, the Nasdaq is on the cusp of losing to the S&P 500 in consecutive years. The last time it happened the tech-heavy Nasdaq was at the tail end of an extended stretch of underperformance that began with the bursting of the dot-com bubble. Between 2000 and 2006, the Nasdaq only beat the S&P 500 once.

Is technology headed for the same reality check today? It would be foolish to count out Silicon Valley or the many attempted replicas that have popped up across the globe in recent years. But are there reasons to question the magnitude of the industry’s misfire?

Perhaps that depends on how much you trust Mark Zuckerberg.

Meta’s no good, very bad, year

It was supposed to be the year of Meta. Prior to changing its name in late 2021, Facebook had consistently delivered investors sterling returns, beating estimates and growing profitably with historic speed.

The company had already successfully pivoted once, establishing a dominant presence on mobile platforms and refocusing the user experience away from the desktop. Even against the backdrop of a reopening world and damaging whistleblower allegations about user privacy, the stock gained over 20% last year.

But Zuckerberg doesn’t see the future the way his investors do. His commitment to spend billions of dollars a year on the metaverse has perplexed Wall Street, which just wants the company to get its footing back with online ads.

The big and immediate problem is Apple, which updated its privacy policy in iOS in a way that makes it harder for Facebook and others to target users with ads.

With its stock down by two-thirds and the company on the verge of a third straight quarter of declining revenue, Meta said earlier this month it’s laying off 13% of its workforce, or 11,000 employees, its first large-scale reduction ever.

“I got this wrong, and I take responsibility for that,” Zuckerberg said.

Mammoth spending on staff is nothing new for Silicon Valley, and Zuckerberg was in good company on that front.

Software engineers had long been able to count on outsized compensation packages from major players, led by Google. In the war for talent and the free flow of capital, tech pay reached new heights.

Recruiters at Amazon could throw more than $700,000 at a qualified engineer or project manager. At gaming company Roblox, a top-level engineer could make $1.2 million, according to Levels.fyi. Productivity software firm Asana, which held its stock market debut in 2020, has never turned a profit but offered engineers starting salaries of up to $198,000, according to H1-B visa data.

Fast forward to the last quarter of 2022, and those halcyon days are a distant memory.

Layoffs at Cisco, Meta, Amazon and Twitter have totaled nearly 29,000 workers, according to data collected by the website Layoffs.fyi. Across the tech industry, the cuts add up to over 130,000 workers. HP announced this week it’s eliminating 4,000 to 6,000 jobs over the next three years.

For many investors, it was just a matter of time.

“It is a poorly kept secret in Silicon Valley that companies ranging from Google to Meta to Twitter to Uber could achieve similar levels of revenue with far fewer people,” Brad Gerstner, a tech investor at Altimeter Capital, wrote last month.

Gerstner’s letter was specifically targeted at Zuckerberg, urging him to slash spending, but he was perfectly willing to apply the criticism more broadly.

“I would take it a step further and argue that these incredible companies would run even better and more efficiently without the layers and lethargy that comes with this extreme rate of employee expansion,” Gerstner wrote.

Activist investor TCI Fund Management echoed that sentiment in a letter to Google CEO Sundar Pichai, whose company just recorded its slowest growth rate for any quarter since 2013, other than one period during the pandemic.

“Our conversations with former executives suggest that the business could be operated more effectively with significantly fewer employees,” the letter read. As CNBC reported this week, Google employees are growing worried that layoffs could be coming.

SPAC frenzy

Remember SPACs?

Those special purpose acquisition companies, or blank-check entities, created so they could go find tech startups to buy and turn public were a phenomenon of 2020 and 2021. Investment banks were eager to underwrite them, and investors jumped in with new pools of capital.

SPACs allowed companies that didn’t quite have the profile to satisfy traditional IPO investors to backdoor their way onto the public market. In the U.S. last year, 619 SPACs went public, compared with 496 traditional IPOs.

This year, that market has been a bloodbath.

The CNBC Post SPAC Index, which tracks the performance of SPAC stocks after debut, is down over 70% since inception and by about two-thirds in the past year. Many SPACs never found a target and gave the money back to investors. Chamath Palihapitiya, once dubbed the SPAC king, shut down two deals last month after failing to find suitable merger targets and returned $1.6 billion to investors.

Then there’s the startup world, which for over a half-decade was known for minting unicorns.

Last year, investors plowed $325 billion into venture-backed companies, according to EY’s venture capital team, peaking in the fourth quarter of 2021. The easy money is long gone. Now companies are much more defensive than offensive in their financings, raising capital because they need it and often not on favorable terms.

“You just don’t know what it’s going to be like going forward,” EY venture capital leader Jeff Grabow told CNBC. “VCs are rationalizing their portfolio and supporting those that still clear the hurdle.”

The word profit gets thrown around a lot more these days than in recent years. That’s because companies can’t count on venture investors to subsidize their growth and public markets are no longer paying up for high-growth, high-burn names. The forward revenue multiple for top cloud companies is now just over 10, down from a peak of 40, 50 or even higher for some companies at the height in 2021.

The trickle down has made it impossible for many companies to go public without a massive markdown to their private valuation. A slowing IPO market informs how earlier-stage investors behave, said David Golden, managing partner at Revolution Ventures in San Francisco.

“When the IPO market becomes more constricted, that circumscribes one’s ability to find liquidity through the public market,” said Golden, who previously ran telecom, media and tech banking at JPMorgan. “Most early-stage investors aren’t counting on an IPO exit. The odds against it are so high, particularly compared against an M&A exit.”

There have been just 173 IPOs in the U.S. this year, compared with 961 at the same point in 2021. In the VC world, there haven’t been any deals of note.

“We’re reverting to the mean,” Golden said.

An average year might see 100 to 200 U.S. IPOs, according to FactSet research. Data compiled by Jay Ritter, an IPO expert and finance professor at the University of Florida, shows there were 123 tech IPOs last year, compared with an average of 38 a year between 2010 and 2020.

Buy now, pay never

There’s no better example of the intersection between venture capital and consumer spending than the industry known as buy now, pay later.

Companies such as Affirm, Afterpay (acquired by Block, formerly Square) and Sweden’s Klarna took advantage of low interest rates and pandemic-fueled discretionary incomes to put high-end purchases, such as Peloton exercise bikes, within reach of nearly every consumer.

Affirm went public in January 2021 and peaked at over $168 some 10 months later. Affirm grew rapidly in the early days of the Covid-19 pandemic, as brands and retailers raced to make it easier for consumers to buy online.

By November of last year, buy now, pay later was everywhere, from Amazon to Urban Outfitters‘ Anthropologie. Customers had excess savings in the trillions. Default rates remained low — Affirm was recording a net charge-off rate of around 5%.

Affirm has fallen 92% from its high. Charge-offs peaked over the summer at nearly 12%. Inflation paired with higher interest rates muted formerly buoyant consumers. Klarna, which is privately held, saw its valuation slashed by 85% in a July financing round, from $45.6 billion to $6.7 billion.

The road ahead

That’s all before we get to Elon Musk.

The world’s richest person — even after an almost 50% slide in the value of Tesla — is now the owner of Twitter following an on-again, off-again, on-again drama that lasted six months and was about to land in court.

Musk swiftly fired half of Twitter’s workforce and then welcomed former President Donald Trump back onto the platform after running an informal poll. Many advertisers have fled.

And corporate governance is back on the docket after this month’s sudden collapse of cryptocurrency exchange FTX, which managed to grow to a $32 billion valuation with no board of directors or finance chief. Top-shelf firms such as Sequoia, BlackRock and Tiger Global saw their investments wiped out overnight.

“We are in the business of taking risk,” Sequoia wrote in a letter to limited partners, informing them that the firm was marking its FTX investment of over $210 million down to zero. “Some investments will surprise to the upside, and some will surprise to the downside.”

Even with the crypto meltdown, mounting layoffs and the overall market turmoil, it’s not all doom and gloom a year after the market peak.

Golden points to optimism out of Washington, D.C., where President Joe Biden’s Inflation Reduction Act and the Chips and Science Act will lead to investments in key areas in tech in the coming year.

Funds from those bills start flowing in January. Intel, Micron and Taiwan Semiconductor Manufacturing Company have already announced expansions in the U.S. Additionally, Golden anticipates growth in health care, clean water and energy, and broadband in 2023.

“All of us are a little optimistic about that,” Golden said, “despite the macro headwinds.”

WATCH: There’s more pain ahead for tech

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November 25, 2022
TSMC shares jump 5% after Morgan Stanley says the chipmaker is a ‘top pick’

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Taiwan Semiconductor Manufacturing Company, Limited at Hsinchu Science Park. Shares of the world’s largest chip maker Taiwan Semiconductor Manufacturing Company rose as much as 5% on Wednesday morning in Asia after Morgan Stanley recommended the stock.

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Shares of the world’s largest chip maker Taiwan Semiconductor Manufacturing Company rose as much as 5% on Wednesday morning in Asia after Morgan Stanley recommended the stock.

“We anticipate a semiconductor cycle recovery in 2H23 and suggest bargain-hunting in quality stocks right now. TSMC is our top pick,” the investment bank said in a Tuesday note. It characterized TSMC as “the enabler of future technology.”

The stock was trading 3.73% higher in afternoon trade. U.S.-listed shares of TSMC rose about 5% overnight.

Chip stocks such as TSMC, GlobalWafers Company and MediaTek are at trough valuations after a rapid market correction, analysts at Morgan Stanley said.

Meanwhile, the secular trends of 5G, artificial intelligence of things and electric vehicles — which need semiconductors — are not reversing, the bank added.

A chip recovery will also be supported by the falling prices of tech products and logistics, reopening of economies — especially in China, and a slower increase in production capacity for foundries, analysts wrote.

Investors should prioritize investing in industry leaders with pricing power, those with secular growth stories and companies that will benefit from China’s semiconductor localization, the note said. Secular growth stocks are those that have long-term value and are not so dependent on current economic conditions.

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In a separate note by Morgan Stanley on Asia’s emerging markets, analysts recommended moving overweight on South Korea and Taiwan, as well as the chip sector in those markets.

“Both markets are dominated by Semiconductors and Technology Hardware,” the note said.

“Our sector colleagues see the worst point for the inventory cycle as soon as Q4 this year and at the latest Q1 next year depending on the sub-segment. Stocks typically make their trough before the inventory cycle makes its inflexion,” it added.

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October 4, 2022
Samsung aims to make the world’s most advanced chips in 5 years, as it plays catch up with TSMC

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Samsung said it will begin making chips with a 2 nanometer process in 2025 and 1.4 nanometer process in 2027. These would be some of the most advanced semiconductors in the world. Samsung is in a race to catch up with market leader TSMC.

SeongJoon Cho | Bloomberg | Getty Images

Samsung said Tuesday it aims to make some of the most advanced semiconductors in the world in five years’ time, as the race between the South Korean electronics giant and the world’s largest chip maker TSMC heats up.

The company laid out a roadmap for its chip production plans, and said it will begin making chips with a 2 nanometer process in 2025 and 1.4 nanometer process in 2027.

The nanometer figure refers to the size of each individual transistor on a chip. The smaller the transistor, the more of them can be packed onto a single semiconductor. Typically, a reduction in nanometer size can yield more powerful and efficient chips.

For comparison, the processor in Apple‘s latest iPhone 14 Pro and Pro Max models is a 4 nanometer chip.

Samsung began producing 3 nanometer chips earlier this year.

Shares of Samsung in South Korea closed nearly 4% higher on Tuesday.

The South Korean firm, known for consumer electronics and memory chips, is looking to ramp up its contract chipmaking, or foundry business, in a bid to catch up with Taiwan’s TSMC.

Samsung is the second-biggest foundry globally by revenue, with a 17.3% market share compared to 52.9% for TSMC, according to TrendForce.

For its part, TSMC expects to begin 3nm chip production this year with production of 2nm set to begin in 2025. However, the company has not officially announced plans to mass produce 1.4nm chips.

Samsung’s ambitious plans come amid global economic headwinds and signs of a slowdown in semiconductor demand. Global chip industry sales fell 3.4% in August compared to July, according to the U.S.-based Semiconductor Industry Association.

Read more about tech and crypto from CNBC Pro

Despite this, Samsung said it plans to expand its production capacity for the most advanced chips by more than three times by 2027 compared to this year, highlighting its bullishness on future demand.

These include its factories in the U.S. Samsung has a plant in Austin, Texas, and is currently building a $17 billion facility in Taylor in the same state.

Washington has been looking to attract chipmakers like Samsung and TSMC to set up factories in the U.S. so that it can reduce reliance on the manufacturing hubs of Taiwan and South Korea.

While Samsung has put a big focus on cutting edge chips, the company also said semiconductors for high-performance computing, automotive and 5G uses will make up more than 50% of its foundry business by 2027. These are usually less advanced chips.

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October 4, 2022